On weak identification in structural VARMA models

Yao, Wenying, Kam, Timothy and Vahid, Farshid 2017, On weak identification in structural VARMA models, Economics letters, vol. 156, pp. 1-6, doi: 10.1016/j.econlet.2017.03.035.

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Title On weak identification in structural VARMA models
Author(s) Yao, WenyingORCID iD for Yao, Wenying orcid.org/0000-0001-6368-0160
Kam, Timothy
Vahid, Farshid
Journal name Economics letters
Volume number 156
Start page 1
End page 6
Total pages 6
Publisher Elsevier
Place of publication Amsterdam, The Netherlands
Publication date 2017-07
ISSN 0165-1765
Keyword(s) VARMA
impulse response analysis
Summary We simulate synthetic data from known data generating processes (DGPs) that arise from economictheory, and compare the performance of fitted VAR and VARMA models in estimating the true impulseresponses to structural shocks. We show that while the VARMA structures implied by these DGPs aretheoretically identified and lead to precise estimates of impulse responses given enough data, theirparameters are close to the non-identified ridge in the parameter space, and that makes precise estimationof the impulse responses in small samples typical of macroeconomic data improbable. As a result, VARMAmodels barely show any advantage over VARs in characterizing the known DGPs in small samples. This isa refinement of the conjecture that near non-stationarity, near non-invertibility or weak identificationcould be possible reasons for the failure of structural VARMA models in providing good estimates oftheoretical impulse responses of particular DSGE models.
Language eng
DOI 10.1016/j.econlet.2017.03.035
Field of Research 140302 Econometric and Statistical Methods
140305 Time-Series Analysis
14 Economics
Socio Economic Objective 910199 Macroeconomics not elsewhere classified
HERDC Research category C1 Refereed article in a scholarly journal
Copyright notice ©2017, Elsevier
Free to Read? No
Free to Read Start Date 2019-08-01
Persistent URL http://hdl.handle.net/10536/DRO/DU:30094117

Document type: Journal Article
Collection: Department of Economics
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